For some, August will be a time to unwind and forget the troubles that dogged the first half of the year. For operational risk managers, however, it seems the summer will be spent less at the beach and more in the office, mulling over what the impending changes to the global financial regulatory system will mean for firms. Added to this unprecedented level of regulatory activity is the worry that swine flu is going to spread further as autumn approaches, threatening businesses at every level. Fraud levels are also rising around the globe as the recession continues to bite. And despite the fact some banks are showing a return to profit - record profits in some cases - if the recession turns out to be W-shaped as expected, further redundancies could be on the cards. No, now is not a good time to be away from the office.
This month is also seeing a renewed focus on firms taking the standardised approach (TSA) to operational risk management. European regulators, particularly the UK Financial Services Authority (FSA), have been putting pressure on standardised firms to improve their op risk management practices. The FSA recently announced the launch of a new work programme entitled The standardised approach: raising the bar (see News p11). Through a series of industry expert groups, the supervisor is seeking to share ideas on practice, guidance, and weaknesses in and possible improvements to the framework. Rumours persist that regulators are considering reworking the betas for calculating op risk regulatory capital for TSA firms, and all the signs are pointing towards expectations for TSA firms to bring their operational risk management programmes almost on par with AMA banks. Rather than making it compulsory for larger firms to go AMA, regulators across Europe appear to be attempting to push larger and systemically important firms to go AMA by stealth rather than by legislation. Some of the larger TSA firms have recognised this. HSBC has already beefed up its operational risk management department and, despite the fact it has denied it is going AMA, preparations seem to be being made in anticipation of the FSA becoming more forceful in encouraging the larger TSA firms to take the advanced approach. In this environment of heightened regulatory scrutiny, it will pay to be mindful of any messages coming from the regulators, however subtle.
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